Poland’s central bank is set to cut interest rates for the first time in over three years on Wednesday, bringing succor to a government in the middle of a tight and bitter election campaign. 

The National Bank of Poland is expected to cut its key lending rate by 0.25 percent to 6.50 percent, responding to a sharp fall in inflation in recent months from a peak of 18.4 percent. 

That may not have enough of an immediate impact on the Polish economy but could certainly change the mood music ahead of one of the key elections in Europe this year, by reassuring hard-pressed households and businesses that their borrowing costs are set to fall further in the near future. 

Governor Adam Glapiński — reappointed by President Andrzej Duda in 2022 for a second six-year term — had said at his last press conference that the bank could start cutting rates if inflation dropped into single digits and was on a clear downward trend. With a preliminary reading of 10.1 percent in August, a fifth straight monthly drop, that’s just above the required threshold but not so far above as to make a cut impossible, analysts say. 

Economically, it’s only a question of time. The inflation tide has already turned in central Europe, where central banks were quicker than the European Central Bank and others to respond to the surge in prices that started in 2021. The NBP’s key rate hit its plateau of 6.75 percent a year ago, and the economy has slowed visibly in response. 

As such, analysts at Deutsche Bank expect it to cut by a full 1 percent before year-end, while ING sees a total of 0.75 percent in cuts. If the first cut doesn’t come on Wednesday, it will almost certainly do so at the NBP’s next meeting, less than two weeks ahead of the election on October 15.

PiS has ruled Poland since 2015. With some six weeks to go before national elections, opinion polls suggest it will again be the largest party in the new parliament, but may need the help of the extreme Confederation party to secure a majority. 

Independence in question

But irrespective of the economics, the approach of the election has given rise to suspicions that Glapiński — himself a PiS senator before his appointment to the bank in 2016 — is using monetary policy to help out his political friends. 

Glapiński’s independence from government has been in doubt for a long time. Pictures of him schmoozing with former party colleagues last year stoked already-existing suspicions that he was too close to the government to be independent. 

There is certainly no love lost between Glapiński and former Prime Minister and EU Council President Donald Tusk, who is heading the opposition to PiS in the current campaign. 

Tusk characterized Glapiński as “incompetent” and “indecent” at the height of last year’s inflation surge, and “guaranteed” to remove him, suggesting that PiS lawyers themselves had had reservations over the legality of his appointment. 

Glapiński responded in an interview with the media outlet Niezalezna by claiming Tusk was preparing to remove him by force, among other things. At other times, he has deflected criticism from domestic opponents with flamboyant PR stunts, such as wrapping the NBP building in a huge banner to make the point that “Russian aggression against Ukraine” and the pandemic were responsible for inflation, and arguing that “blaming the NBP and the government for high inflation is a Kremlin narrative.”

Analysts argue that if anything stops the NBP cutting rates on Wednesday, it will be the risk that currency weakness undermines any feel-good effect from the start of policy easing. The zloty has weakened 1.5 percent against the euro in the last month, and fell to a three-month low on Tuesday, at nearly 4.50 to the euro. After a solid rally earlier in the year, it may be vulnerable to further losses if it is seen to be cutting rates while the European Central Bank is still raising them.